FROM THE OFFICE OF PUBLIC AFFAIRS

April 10, 2005
JS-2372

U.S. Applauds MIF Replinishment
“A model for effective private sector development.”

"President Bush recognizes how essential the private sector is to development in Latin America and that's why the United States is making such a substantial commitment to this fund," said Taylor.  "The United States is deeply committed to increasing economic opportunity and freedom and improving living conditions in the entire hemisphere.  Business development is essential to this goal because businesses create jobs.  With the new reforms and increased funding, I believe that we will see important improvements in job creation and greater economic opportunity for many people in Latin America."

Under Secretary Taylor and the other Governors of the Inter-American Development Bank signed the Multilateral Investment Fund II (MIF II) agreements at the Bank Group's annual meeting in Okinawa, Japan. The agreement replenishes the fund by more than $500m while at the same time strengthening the institution to make it a more effective tool for the assistance of the private sector in Latin America and the Caribbean.  The U.S. is the largest donor to the replenishment, pledging $150m to the fund.  In recognition of MIF's successful results, a number of new donors, including the United Kingdom, France, Switzerland, and Korea, are joining MIF II.

The Multilateral Investment Fund was established in 1993 under the auspices of Japan and the United States who donated one billion out of the initial $1.2b funding.  The MIF was established as part of President George H.W. Bush's Enterprise for Americas Initiative.  The MIF has demonstrated its effectiveness in promoting the creation and growth of micro and small and medium enterprises (SMEs) throughout Latin America and the Caribbean.  Providing 75% of its assistance in grants, it has shown innovation, creativity, and nimbleness in its work with private firms, banks, public-sector entities, and NGOs to foster an environment where the private sector can flourish.

A very important example of MIF's innovation is its identification of remittances as a source of economic growth and development in the region.  Under Secretary Taylor highlighted the importance of action on remittances:

"Remittance flows are a very essential factor in economic development in the region because they come directly from Americans working in the United States to people who can really use the money in central and south America and the Caribbean. If we can make it easier and cheaper to allow these huge flows of funds from the United States get to families in the region, millions of people will helped."

More than $45 billion of remittances now flow annually to the region and MIF has pioneered efforts to harness these flows for growth through efforts to reduce transaction costs, channel them into the formal financial system, and provide recipients to options to use them to finance job and growth producing activities.

A constant focus of MIF's work is micro and small business.  Last year, in response to the region's commitment to SMEs at the Nuevo Leon summit in 2003, MIF entered an agreement with the Inter-American Investment Corporation (IIC) to help the IDB Group meet its goal of tripling credit for SMEs by 2007.  The agreement will allow MIF to fund technical assistance for IIC SME financing, thereby increasing the impact and likelihood of success.

The MIF II agreements continue to build on the success of MIF I, and in so doing reflects many of the key tenets of the Bush Administrations core principles of development.  It includes a set of twelve concrete, time-bound commitments to fortify and expand MIF's results measurement mechanisms and requirements, to be implemented within a year.  The agreements retains the focus on grants at MIF I historical levels (75%) while also permitting it to continue other innovative financing modalities – including equity investments – that stimulate and build the private sector.  MIF II also contains a sunset clause, reflecting the conviction that development institutions should always focus on the ultimate objective: the day when their success will make them obsolete.

In all, this is a very positive development in the effort to provide focused, effective aid designed to create the foundations of lasting, private sector led growth that is the only sure way to lift people permanently out of poverty.  President Bush's pledge to MIF II represents its continued strong commitment to the region.